Banking on the Postal Service?

Imagine an economic collapse in which millions of people lose half of their life savings and their trust in the country’s largest financial institutions is severely shaken. To help restore trust in the financial sector, the government creates a savings system operated by its postal administration. Sound unrealistic? Maybe so, until you remember that the U.S. Post Office Department offered a government-backed savings system to Americans for more than half the twentieth century.

Searching for ways to raise revenue for a postal telegraph network and inspired by Great Britain’s postal savings system, Postmaster General John A.J. Creswell first recommended a postal savings bank for the United States in 1871. But it wasn’t until the Panic of 1907, which shook the public’s trust in private banks, that the concept really gathered widespread support. Finally, in 1910, the Congress passed the Postal Savings Act that authorized the Post Office Department “to establish postal savings depositories for depositing savings at interest with the security of the Government for repayment thereof, and for other purposes.”

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The creation of the postal savings system was intended to get money out of hiding and to provide safe depositories for people who had lost confidence in banks. It was also intended to provide a convenient means of saving for individuals throughout rural America.

Initially, depositors in the system were limited to a balance of $500, but this was raised to $1,000 in 1916 and to $2,500 in 1918. The system paid depositors 2 percent annual interest. During the first two decades, the system had a natural advantage over private financial institutions, because the deposits were always backed by “the full faith and credit of the United States Government.” Even so, deposits were slow at first, but by 1929, $153 million was on deposit. Because of the bank failures during the Great Depression, the amount jumped to $1.2 billion in 1934, which was one-third the amount of the entire savings and loan industry. The system continued to flourish through World War II, but by 1948, proven banking reforms and higher interest rates caused a downward trend for the postal savings system. Congress abolished it in 1966 and the Post Office Department stopped accepting deposits on April 27th of that year.

In a column for the New York Times this past October, Michael Lind proposed that a new postal savings system be created. Lind argued that “the current structure of public and private finance chronically fails to address four problems: the almost 10 percent of Americans without a bank account; the concerns of all Americans about the security of their savings, the growing indebtedness of the country to foreign governments and financial institutions, and underinvestment in public assets like sewer systems and bridges.” In his view, a postal savings bank would address these issues.

Opponents of this idea argue there are plenty of private institutions that offer banking services, even in rural areas of the country, and that the Postal Service should concentrate their efforts on collecting, processing, and delivering the nation’s mail. They also argue that since the banking reforms created during the Great Depression (the FDIC is a prime example), there is no reason why the American people should ever feel their savings are not secure. After all, if the U.S. Government could not guarantee people’s savings through the FDIC, why would their money be any more secure in a postal savings system? The United States and Great Britain are not the only nations that have experience in combining postal services and banking. In more than 40 countries, posts provide some type of banking services (for example, China, Italy, Japan, Israel, Austria, Brazil, and India). In fact, during the current downturn, revenue from financial services has helped sustain some posts. The U.S. Postal Service, however, could not start offing savings services unilaterally. A change in current law would be required.

What do you think about a new postal savings system? Do you believe such a system is needed? If so, what are the major benefits you foresee? If not, why not?

This blog topic is hosted by the OIG's Risk Analysis Research Center (RARC).

Comments (28)

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I am a student. I chose the USPS as my model for two of my classes this semester: Administrative Law and a Composition class. After three full months of studying the facts surrounding, and issues related to, postal banking and the more than 1 in 4 adult unbanked in the United States, my conclusion is that the United States has allowed for over 1 in 4 American adults to be stripped of their constitutional rights. Not only have mainstream banks abandoned these persons, the United States' actions of not instituting some form of public postal banking equates to the United States abandoning these persons as well. A public policy that allows for the unbanked to be able to at least cash checks and perform bill pay by some means, in a safe and non-predatory manner, is not only way overdue, it is extremely irresponsible on a national level that such a situation has not been addressed to satisfaction some time ago. The USPS is the government agency that is capable of handling this urgent matter. Further, Congress should enable the USPS to perform additional postal banking services for a long and legitimate list of reasons. This should have at least been done immediately after the 2007 financial crisis. It is unfortunate that the Postal Savings System was ever discontinued. I call for the Postal Service to immediately institute practices that will assist the unbanked (and others who would benefit from such desirable services), for services not requiring additional enabling by Congress. I also call for the Postal Service to demand the Executive and Congress to immediately address the situation to satisfaction.

A postal banking system would be great for many low income residents in this country.
There is no low cost banking available in the neighborhood where they live, which leaves them to use payday lenders for their banking needs. These lenders provide their services at such an outrageous cost that often in debts their clients for years because of the outrageous interest rates charged.

Most people fail to understand the mission of the postal service was to bind a nation, support the growth of commerce, and insure a free flow of ideas and information. The Postal Inspection service (now IG) plays an important role on our civil rights protections especially cases of fraud. Let's not lose that. Read the history of the Post Office and you will learn they paved the way for road building, rail and air travel. Most innovations lasted less than 3 decades and some like the pony express only 1-1/2 years. innovation has always been the key. (See ZIP, BCS &amp; OCR). Immigrants at the turn of the century came from countries that had banks in their post offices. Around the financial crisis of 1907 the POD also initiated a savings and banking function that served the people who no longer trusted other banks. This can and should be re-instituted as a way for extending governments highest trusted public service. And they could also throw in the Thrift Savings Plan offer that federal &amp; military employees enjoy as well as an Internet connection to government agencies. Innovation. We need brighter people at postal headquarters and fewer lobbyists influencing the people's right to continued revenue-neutral universal service, one that binds a Nations states &amp; people.

Mobile Marketing US Postal Service Banking on 2D Barcodes for New Mobile Marketing PromotionThe United States Postal Service is playing catch-up with the mobile technologies sorely needed to help the USPS stop the financial hemorrhaging it has endured in recent years.

Wow, I am surprised by all the comments on focusing on "the main misssion" of the USPS. That might work in some industries, but mail delivery is on the decline. Typically, you look to find different ways to sustain your operations, especially with hundreds of thousands of employees. I'd like to keep my postman employed!
Expanding to other services doesn't take away your focus (after all, nobody suggested the postal employees would be carrying around snake oil in addition to letters). The benefit is better foot traffic to a piece of real estate that is underutilized. The more people have a reason to go there, the more they will be inclined to send something in the mail. Limited bank services have are keeping the Poste Italiane in business and its employees on the payroll. Plus, people trust postal employees more than bankers.
I say look at the good that might come out of it, and if countries like Italy and Brazil and make it work, why wouldn't it work in the US?

The Postal Service does not need to get into the banking business. We have enough to deal with managing our own budget without having to deal with a Postal Savings System ala the 30's and 40"s. We got out of that busines for a reason. Let's concentrate on our core business and the needs of our customers and leave banking to the bankers.

Keep to the core seems to be a common theme. It's a good point. A lot of business management advice says that businesses should do what their good at and leave the rest to others. If the core is going away, however, will the Postal Service have to shrink?

RARC is a good host.
OIG should have more good host like RARC and may try a special section (forums) for case study. It will help OIG hearing more different voices from different levels’ real postal people. It could be a real case study or academic one. Cases may be determined and given by OIG or real managers from different stations around the nation. For better result or for a feasible solution to each case that OIG looks for, due to the natural of our business, cases can also be categorized or divided in different geographic location.
Participants should have real identity so they could communicate more closely. Managers, supervisors, carriers, clerks and even TEs should be encouraged to participate. If these ideas, suggestions, or solutions are practically and feasibly good and adapted by OIG in order to help solving the problem or improving USPS’ performance, symbolic award should be given for motivating others to involve, to participate.
Forums should be private and internal. OIG may invite professors or leaders from outside to host the forums. Outside professionals might aid us immensely at all stages in the development of this kind of forum.
If OIG hosts these forums successfully, subjects of forums may extend to more fields. Besides workflow management and cost-efficiency subjects; we may have strategic decision section, value-chain and supply-chain analysis, planning and control, marketing, customer services and technology innovation. OIG can even try ERP (enterprise resources planning). There are many geniuses among us at our workplaces. I believe they can be encouraged, motivated to contribute more their talents to USPS from management to technology, from customers service to marketing. I also believe that these people can provide more solid support to Postal General in order to improve its performance, overcome its various difficulties, and to help USPS transform to the next level ---- a new industrial technology innovation leader and world class USPS.

Thank you cadavidlin. The OIG is trying to use all forms of social media to help it carry out its mission. As the OIG studies particular issues, we are planning to use closed invitation-only forums on occasion. Your suggestions for using the forums are very helpful. I agree that engaging all levels of the Postal Service might produce some very interesting ideas.

The French Postal System (La Poste Group) launched its banking subsidiary (La Banque Postale S.A.) in 2005, and it now accounts for about 22% of the revenue.
http://www.laposte.com/results-2007-perspectives-2008-for-la-banque-postale
Evaluating the strengths and weaknesses of this venture would be worthwhile.

Postal workers are so taxed and their work hours so cut to the bone now, one more thing like this would turn out a big mess. Already, Postmasters are so busy, and clerks have so few hours that when people pay their Post Office box rent, half the time it never gets entered into webbats and the customers box gets cut off when they have paid. I can just imagine these rural Postmasters trying to manage bank deposits! I think people would use the service, but would take more employees to handle it. Also, potemtial customers would find it annoying that the hours are so short, and many offices closed in the middle of the day that they couldn't access their money when they want to withdraw. We would have to keep large sums of money on hand, causing potential security problems with so many employees in the office, and would have to have more cost for safes, alarms, etc. Would put hCR drivers in danger when crooks realize the large amounts of money they potentially might be carrying.

i've been told that the usps's customers are the ones that mail things, esp direct mailers. why then did the usps hike rates and try to force this mailers to adhere to sizes that were good for the usps to automate, but not in the best interest of the mailers? if every advertiser mails a identical piece of mail (size), it is not effective. the mailers have found their response rates have gone done alot. so they are turning to other resources. potter, you have to reverse this trend you have caused.

You bring up a good point that the best pieces for mailers may not be the best pieces for the Postal Service's machines. It's also important, however, that the revenue from mail pieces cover their costs. Customized MarketMail product is an example of a Postal Service product that helps mailers send really dramatic mailpieces yet bypasses equipment.
http://www.usps.com/customizedmarketmail/welcome.htm

The question is not necessarily about a postal savings program and whether that should be reinstituted. The question is why not allow the USPS to utilize its "brick and mortar" facilities as an agent for banks in small communities that do not have physical banks to serve the public. The USPS could offer simple banking services as a contractor/agent of a bank.......offering the bank's services (not a USPS savings product). The US gov't could also untilize the USPS for the sale of any financial instruments, etc to make it easier for citizens. The idea is to make life easier for citizens and to generate revenues for the USPS to help pay for universal service and the extensive retail network.

I think JN has a great suggestion. USPS should follow the contractor/agent model. It should leverage its retail infrastructure to sell other banks' financial instruments and basic banking services. The Postal Service is in the business of offering public services and binding the nation together but not in the business of competing with the private sector in businesses it does not know that much about. JN's suggestion seems to be a win-win proposition. And it's politically more palatable.
Thanks.

That would certainly be a good compromise. Rural and perhaps some underserved urban citizens would have better access to banking. The Postal Service could get additional funds to sustain its retail network.

I don't feel the Postal Service has any need to get into the banking business. The USPS needs to focus on its mission, improve efficiency in distribution and protecting the sanctity of the mail for its customers and not get sidetracked into something it has no business in being involved with. We have other federal institutions for that.

Many posts around world provide some kinds of banking services to their citizens, and some of them are doing as well as private financial institutes. In China, for example, many people still use postal service to wire funds although local banks could provide more professional services. But, USPS can’t! The causes of problems or “challenges” that USPS is facing might not be simply current economic downturn and innovation of computing technologies. If you work for USPS, and you are the person who loves to observe scientifically, it will not be difficult to perceive that it is caused by its infrastructural and managerial failure.

Hi, RARC host:
For banking issues, no improvements need to be discussed because USPS is not ready for banking service at this time. USPS needs to focus on its own mission and keeps improve its service and quality.
Yes, USPS has its potential become a large financial insitution. USPS also has an ability to monopolize local advertizing market if management can change their strategy (the way of think).
Bottom line, I think USPS should fix the problem they are facing first.

I don't see a need for a postal savings system. The Postal Service cannot seem to manage the billions of dollars it currently earns. How would it be able to manage potential millions of dollars in deposits...and, is it qualified to "really" manage those dollars? Also, what role would congress play? What entity would really get to take advantage of those potential large sums of deposits??? Hummmmm...

We have just been informed our post office in Pine Mountain Club Ca 93222 is being closed. We are a mountain community of 2,315 population. We have never had delivery and must go to our town PO. The...

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